Costs Budgeting; the balancing act between the proportionality of a budget and the reasonableness of its constituent parts
Two notable decisions on costs budgeting have recently been provided by the Courts. The first of these matters is Associated Newspapers Ltd v Buckingham Group Contracting Ltd (Cost Budgeting)  EWHC 2767 (TCC). The Court considered the points that should be taken into account when determining proportionate and reasonable costs during the budgeting process and, of particular note, was the approach that should be taken where there is significant disparity between the parties’ hourly rates. The second matter is Various Sam Borrowers v BOS (Shared Appreciation Mortgages) No. 1 Plc & Ors  EWHC 2594 (Ch), which considered the proportionality and reasonableness of a matter involving 161 claimants where the Defendants’ budget that was almost double the amount of the Claimants’ budget.
Associated Newspapers Ltd v Buckingham Group Contracting Ltd (Cost Budgeting)  EWHC 2767 (TCC)
The claim concerns a building contract and allegations that the relevant works were completed negligently. The matter came before Mr Roger Ter Haar KC on 7 October 2022 and the CCMC judgment was provided on 2 November 2022. The Defendants’ costs budgets had all been agreed amongst the Defendants. The Claimants had not expressly agreed the Defendants’ budgets however no challenge had been raised. Due to this, and also on the basis that the Claimant’s budget was significantly in excess of the Defendants’, the judge was content to approve the same. The Claimant’s budget was challenged in its entirety. BCGL had made an offer against ANL’s future costs in the sum of £1,378,658.00, which amounted to around 57% of the costs sought. BCGL submitted that the hourly rates should be guidelines, that there was excessive reliance on Counsel and it was also alleged that the time claimed was too high in respect of a number of phases.
The judge summarised the relevant provisions under CPR Part 3 and Practice Directions 3E for the however particular emphasis was placed on:
- The court cannot approve incurred costs however may record its comments and take the same into account when considering the reasonableness and proportionality of budgeted costs: CPR 3.17(3).
- The court will not undertake a detailed assessment in advance, but will consider whether the budgeted costs "fall within the range of reasonable and proportionate costs": CPR PD3E, paragraph 12.
- (5) Whilst the underlying detail in the budget may be considered, it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget: CPR 3.15(8).
He also considered the matter of GSK Project Management Ltd v QPR Holdings Ltd  EWHC 2274 (TCC), where Stuart-Smith J noted that “Only exceptionally will it be appropriate to go through a Precedent H with a fine tooth-comb” and also the matter of Yirenki v Ministry of Defence  EWHC 3102 (QB) where Jacobs J noted that, whilst the process of setting a budget should be on the basis of what is reasonable and proportionate, this does not mean that it would be inappropriate for judge to consider the constituent parts when setting and approving the figures. Jacobs J further noted that it would be impossible to arrive at a figure without consideration of time spent and the type of people undertaking the work. The judge therefore concluded that, whilst it was not permitted for the Court to set hourly rates, it is necessary to consider the same in order to determine whether the deployment of the legal team is reasonable and proportionate.
He also considered the specific factors under CPR 44.3(5) and 44.4 with regards to proportionality.
The budgets put before the judge were in the sums of £3,181,158.17 for the Claimant, £1,873,808.58 for the Defendant, £1,024,825.15 for the Third Party and £1,270,669.95 for the Fourth-Sixth Parties. The Defendant’s/Third Party’s hourly rates were all claimed at below guideline. The Claimant’s hourly rates ranged from £801ph for Grade A to £201ph for Grade D and all were well above guideline, often by as much as 85%.
The judge noted that the most important factor to consider when determining proportionality is the value of the claim, which was likely to be in excess of £10 million in this instance. He also noted that it was a relatively complex case, which was illustrated by the 12 day trial estimate. He concluded that the budget as drafted was disproportionate to the issues and directed that the costs should be reduced overall by 15%. Reductions per phase were not applied and ANL were requested to submit a revised budget which reflected the proposed 15% reduction. He also noted that the incurred costs were very substantial in themselves.
Various Sam Borrowers v BOS (Shared Appreciation Mortgages) No. 1 Plc & Ors  EWHC 2594 (Ch)
This matter concerns claims brought by some 161 consumers, in respect of a mortgage product known as a shared appreciation mortgage (SAM) sold by Bank of Scotland Plc during 1996 and 1998.
The first CMC took place on 5 October 2021, at which point the Court provided initial directions, which included the process for selecting and exchanging pleadings of 26 “Pleading Claimants”, with a further CMC to be listed with a view to determining the identities of the lead Claimants. The Claimants subsequently applied for costs management, which was not resisted by the Defendants, and budgets were filed up to and including the second CMC.
The first CCMC took place on 19 January 2022; the Court made a Costs Management Order for the Claimants in the sum of £509,635 and for the Defendants in the sum of £646,375. The Court also noted at this time that the Defendants’ incurred costs were disproportionate and unreasonable.
On 22 July 2022 a further CMC took place to case manage the now determined 15 lead claims and directions were provided with regards to witness statements, expert evidence and the listing of a further CMC 16 weeks prior to trial with the trial to be heard over 6 weeks.
Updated budgets, to cover the costs up until trial, and budget discussion reports were exchanged in September 2022. The Claimants’ budget (totalling £4,272,512.36) was largely agreed; it was only the Claimants’ proposed contingency A for specific disclosure that was in dispute. The Defendants’ costs budget initially totalled £8,323,831 however the Defendants revised their budget downwards to £7,748,831.10 1 week prior to the CCMC. The estimated costs alone of the Defendants’ budget completely outstripped the entirety of the Claimants’ budget. Needless to say, the Defendants’ budget was contested on the basis of proportionality and reasonableness.
Mrs Justice Joanna Smith noted that the relevant principles are set out under CPR 3 and Practice Direction 3E. However, she also highlighted a number of key principles, notably the factors that should be taken into account when considering proportionality and the fact that the Court should not seek to undertaken a detailed assessment in advance. She commented that “reasonableness may involve having close regarding to the calculations in a budget, but proportionality does not” and that “a comparison between budgets may be informative but it can never be determinative; similar work in the hands of different legal teams may result in different costs”. She concluded that, due to the provisions surrounding budgeting, and the effect of the same at detailed assessment, decisions that are made at the costs management stage are clearly both significant and important.
The Defendants’ budget was disputed for a number of reasons:
- Counsel; there were three separate Counsels instructed, meaning that the costs of Counsel were significantly inflated in a number of phases
- Proportionality; the costs were disproportionate to the value of the 15 lead claims (being circa £7.3m) and the complexity of the claims (this was disputed by the Defendants on the basis that the 161 claims had a potential value of over £50 million)
- The CMC phase; costs claimed of £121,650 for a half day CMC, against the Claimants’ budget of £65,480
- The expert phase; £690,000 claimed against the Claimants’ budget of £379,361.50
- The trial preparation phase; £2,013,480 claimed against the Claimants’ budget of £1,098,150. Counsel’s fees were of particular note given that the brief fees totalled close to £1.5 million against the Claimants’ estimate of £625,000.
- The trial phase; £773,325 claimed against the Claimants’ budget of £417,531.
The Court concluded that the claims were indeed complex due to the number of Claimants involved and the various differing factual cases however it certainly did not involve the level of complexity seen in heavy commercial cases. It was also noted that the list of issues identified, in broad terms, only 3 key issues for determination at trial. However, in terms of value, the Court agreed that the sums in issue should be in respect of all claims, and not just the leading claims. This was on the basis that the trial would likely mean a win or lose of all claims. The Court considered that the Claimants’ budget would be a good starting point to determine whether the Defendants’ budget was reasonable and proportionate.
The Court considered the Defendants’ budget and noted that, whilst a client is of course entitled to a “Rolls-Royce” service, it cannot expect to recover its costs over and above what is reasonable and proportionate. The Court allowed £80k for the CMC phase and £500k for expert phase. The judge did not accept the Defendants’ argument that a 6 week trial would require 14 weeks of preparation and considered Counsels’ brief fees to be “little more than aspirational”. A figure of £1.2m was arrived for the trial preparation phase and £700,000 was permitted for the trial phase.
The Claimants’ Contingency A for specific disclosure was not permitted on the basis that it was premature to include at this stage and also on the basis that, if an application was to made, costs could be summarily assessed.
Key points for practitioners to take away from this is that the Court will indeed consider the constituent parts of a budget however proportionality will be the deciding factor. Additionally, where one party’s hourly rates are particularly high, this will not necessarily mean that the time will be reduced as a result, provided that the work is delegated appropriately and the case is run efficiently. Furthermore, where your costs are significantly higher than your counterparts you should be prepared to fully explain this at the CCMC; lack of explanation or insufficient reasoning will likely result it a hefty reduction.